US stock markets were closed on Monday, 21 January 2008 in observance of Martin Luther King Day.
Sensex had tumbled 1408.35 points or 7.41% to 17,605.35 points on Monday, 21 January 2008 triggered by setback in global markets, selling by foreign institutional investors and margin calls after a proposed US stimulus package failed to soothe fears the US will tip into recession.
The BSE Sensex has now eroded 3601.42 points or 16.98% from a record high of 21,206.77 hit on 10 January 2008.
Responding to the stock market fall on Monday, 21 January 2008, the government has advised investors to take informed and responsible decisions in the situation and not be led by rumours or any unwarranted apprehensions.
As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 3296.73 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 3399.20 crore on Monday, 21 January 2008.
FIIs were net buyers to the tune of Rs 1,104.41 crore in the futures & options segment on Monday, 21 January 2008. They were net sellers of index futures to the tune of Rs 1,461.31 crore and bought index options worth Rs 374.46 crore. They were net buyers of stock futures to the tune of Rs 2,195.21 crore and sold stock options worth Rs 3.95 crore.
Pressure from margin calls which was the major reason for the huge fall on Monday, will continue today. A margin call is triggered when shares that an investor had bought with borrowed money decrease in value. If the investor is not able to put up additional margin, the broker/financer will resort to sale of shares.
Domestic insurance firms may continue buying at declines. Insurance firms have been raising lots of funds through unit-linked insurance plans with high weightage for equity. The money is being pumped in the secondary market.
Some of the foreign institutional investors (FIIs) recently registered with the market regulator Securities & Exchange Board of India (Sebi) may start buying at declines. Since Sebi's restrictions on participatory notes in October 2007, 134 new FIIs have been registered with Sebi, taking their total tally to 1,259.
Collections from new funds offers (NFOs) of mutual funds may also provide support to the market at declines as the funds deploy the money in the market. A total of 10 new funds offer are currently on which include Reliance Natural Resources Fund, AIG Infrastructure & Economic Reforms Fund, HDFC Infrastructure Fund, ICICI Prudential Fusion Fund – Series III, among others.
The US economy has been hit hard by rising defaults in the sub-prime mortgage sector in which Americans with bad credit records are struggling to pay back housing loans given to them during the housing boom.
US president George Bush on Friday, 18 January 2008, called for a package of tax cuts and other measures totaling around 1% of US gross domestic product, or up to $150 billion, after weak recent reports on employment, retail sales, factory activity, and housing construction this month suggested the United States -- the world's largest economy --may be heading into recession. Under consideration in the package announced by Bush are ideas like tax rebates, incentives for businesses, and extensions of unemployment insurance.
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